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Big bank earnings: trends in executive commentary

AlphaSense

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April 16, 2020


Buildings with graph line.
Buildings with graph line.

America’s biggest banks reported earnings this week and shed light on how this uncertain environment impacts their outlook. With all significant players reporting reserve-building activities and significantly lower earnings, we got an early glimpse into how COVID-19 affects the economy. What were the major trends in the executive commentary? What macro assumptions are banks building into their models? We’ve compiled highlights from this week’s earnings calls.

Takeaways:

  • Goldman Sachs on lending: we will be pretty cautious about credit extension and growing that book. And we’ll return to produce that book once this sort of circumstance and market volatility passes.
  • JPMorgan on reserves: Given the deteriorated macroeconomic outlook, we would expect to build resources in the second quarter.
  • Wells Fargo on CCAR: So just to dimension compared to other scenarios, thinking about both our performance in the financial crisis as well as our CCAR severely adverse scenarios, at this point, we see this as not generating that level of loss in our CCAR severely negative scenarios
  • Bank of America on consumer spending: The overall expenditures of all types of spending in our customers seem to have stabilized in the last few weeks. We’re seeing spending run at about a low $50 billion average level during mid-April compared to a $60 billion intermediate level before the crisis.
  • Morgan Stanley on deposits: We saw a surge in March, almost $30 billion in March alone. And the balances are up to $45 billion for the quarter. That was generally a result of people shifting out of equities and going into cash in the wealth system.
  • Citi on dividend: But to be clear, we remain committed to paying our premium in our capacity here and how we’re looking at things.

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MACRO / CREDIT

Goldman Sachs

And so, indeed, I think if you’re trying to prepare for an economic environment, you have to view something that is a slower economic recovery as you come out of this. And look, even if you look at the Goldman Sachs scenario of a very steep decline with a sharp increase in the second and third quarters, they’re still only predicting a 50% recovery of the output that we’ve lost. So I think for anybody operating a business, you have to be planning on the assumption that we’re going to be working in a recession through 2020 into 2021, and you have to plan accordingly.

Will the monetary policy and fiscal policy be a benefit to the positive of what that trajectory looks like in the third, fourth quarter and into the first half of next year? Yes. But it’s tough to quantify what that will be because the uncertainty around the course of the virus will take and how it will affect human behavior is still very uncertain. And anyone who’s telling you they’re sure that it will look like this or that it will look like that, I don’t think anybody’s sure.

The book stands at $128 billion. There was meaningful growth in the quarter, occasioned by the relationship loan book being drawn by about $19 billion. But I think the risk is a critical governor. And so I would just point out as an example, in the context of the Consumer book, we’re ever committed to that business. But at this moment, in this environment, we will be pretty cautious in terms of credit extension and growing that book. And we’ll return to produce that book once this sort of circumstance and market volatility passes. So this is just an example of how risk needs to be the governor in managing this profile and the loan book overall.

It’s worth pointing out that in taking a look at the contraction of GDP. We, in these scenarios, look at unemployment. But we don’t ignore the fact that there are several programs in place across a range of countries, notably the U.S., where central banks and treasuries have put in place monetary and fiscal stimulus that has the potential to serve as some counterbalance, if you will, to what may play. To the extent that holds and accelerates recovery, I expect reserves to reflect it. If this continued and that didn’t have the efficacy that is otherwise intended, one could imagine a scenario that plays more to the downside. I would expect provisions and losses to reflect the same. And so again, hard to predict what the next quarter or subsequent quarters hold. But I think we’ll rely on it, and you should know that we’ll rely on a pretty robust modeling exercise that will reflect the circumstances we see in front of us.

JPMorgan Chase

Answer – Jennifer A. Piepszak: Sure. So Mike, as we close the books for the first quarter, just to give it context, we were looking at an economic outlook that had GDP down 25% in the second quarter and unemployment above 10%. So it’s just important to note that that kind of gives you a frame of how to think about it, but there’s a lot more that goes into our reserving, including management judgment of some like world-class risk management and finance people and other analytics. And so that just kind of gives you a frame of reference.

But there, we did think about several other scenarios that we should contemplate in reserving. And we also thought about the impact; what’s our best estimate of the effects of these special government programs and our payment relief programs.

Since then, as I noted in my prepared remarks, our economists have updated their outlook and now have GDP down 40% in the second quarter and unemployment at 20%. That’s materially different. However, both scenarios do include a recovery in the back half of the year.

And so all else equal, and of course, the one thing — probably the only thing we know for sure, Mike, is that all else won’t be equal when we close the books for the second quarter. But all else equal, given the deteriorated macroeconomic outlook, we would expect to build reserves in the second quarter. But again, a lot will depend on the ultimate effect of these unique programs and how effective they can be in bridging people back to employment.

Answer – James Dimon: I say in commercial real estate. Eventually, it will be loaned by loan and name by name. So if you have reason to believe that a loan is wrong, you’re going to write it down and put a reserve against it or something like that.

This is such a dramatic change of events. So there are no models that have dealt with GDP down 40%, unemployment growing this rapidly. And that’s one part. There are also no models that have ever dealt with a government, which is doing a PPP program, which might be $350 billion, it might be $550 billion, unemployment where it looks like 30% or 40% of people going unemployment but higher income than before they went on unemployment. So what does that mean for credit cards or something like that where the government is just going to make direct payments to people? So this is all in the works right now. The company is in perfect shape. We can serve our clients, and we will give you more detail on this, but it’s happening as we speak.

And I think people — you’re making too much mistake trying to model it. When we get to the end of the second quarter, we’ll know exactly what happened in the second quarter like we know — you’ve got to expect the credit card delinquencies and charges will go up that we’ve seen a tiny bit so far, but by the end of the second quarter, you’ll see more of it. And then we’ll also know if there’s a fourth round of government stimulus. So we’ll see a bunch of stuff, and we’ll report that. We hope for the best, which is that you have that recovery and plan for the worst, so you can handle it.

Answer – Jennifer A. Piepszak: Yes. And then, in terms of planning for the worst, Betsy, maybe it would be helpful. Jamie referenced the extreme adverse scenario in his Chairman’s Letter had a 2020 credit cost of more than $45 billion. So clearly, that is not our essential case, but that’s the kind of scenario that we are making sure that we’re prepared for.

And then, coincidentally, if you look at our credit costs from the fourth quarter of ’08 to the fourth quarter of ’09, across those five quarters, we had creda it cost of $47 billion. So…

Answer – James Dimon: I got this number when the reserves went from $7 billion to $35 billion back to $14 billion. Reserving itself is procyclical and often wrong. And you’re required to do it, but it certainly doesn’t match revenues and expenses. 

Wells Fargo

So to dimension, compared to other scenarios, thinking about our performance in the financial crisis and our own severely adverse methods, at this point, we see this as not generating that level of loss in our own severely negative scenarios. I reduced nine quarter credit losses of about 2.75% in total, with peak quarterly loss rates expressed on an annualized basis of about 1.7%, 1.75% and, an average of about 1.2%. That’s got a more profound drop in GDP and a steeper climb in unemployment. And importantly, no stimulus baked into the severely adverse case. It doesn’t anticipate the types of interventions that we’ve already seen and, we’re waiting to see them materialize.

And concerning financial crisis as a benchmark, importantly, at least for Wells Fargo, it may be true for other banks, but loan portfolios were very different then. The quality of loans, particularly on the single-family side, was worse. I think our auto portfolio was worse then, too. And so there, we did produce somewhat higher loss rates, even higher loss rates than we do today in our own CCAR analysis because of the contportfolio’s content difference. But I would describe what we’re currently imagining now e; I’ll call it, half-ish of an annualized loss rate of the severely adverse version of our ss test. And so, if things play out substantially worse, then there’s a possibility that we end up building more or experiencing more charge-offs or both. But we feel good about the approach that we’ve taken in March, developing our scenarios with our governance around it and coming into the quarter-end

Citi

Glenn, I would say that the actions that we’ve seen out of the combination of the fed and the treasury are extraordinary, not just in terms of the volume of dollars and programs. But, still, Ink the breadth that’s there and the speed at which they’ve implemented them and whether it’s been the CP facility, the money market liquidity facility, the repo facilities, the broader corporate pieces, the SBA loans, and now not something that’s being talked about that much but is this Main Street program that’s there.

And I think from a plumbing perspective, your question is a good one because ob real economy doesn’t have direct access to the fed or treasury. I think it’s the banks and in, particular, the big banks’ role, one of many roles that we play to be that transmission mechanism between fiscal monetary and the real economy. And I think you can see in terms of in the early days how the markets were trading, a lot of the fears and concerns that were there and whether it was the early fears of draws, whether it was the early fears of money funds and being able to get liquidity across the Board. And I think the programs have gone a long way. There are a few things out there that probably need some work. We’re in constant dialogue with the fed and the treasury on those as an industry. And again, as I suspect, as those things create challenges, it’s likely that we will see a reaction come out of those bodies to be able to address it. So I think the plumbing is acting pretty well. Despite being king remotely in the numbers that Mark and I spoke to, we had, in late March, record volumes of trading in terms of settlement, clearing, margin, margining in the system. And again, most of that done was remotely, and we all would have said to each other, 6, 9, 12 months ago, we’re going to model for this type of stress, we probably all would have been skeptical about the system performs. So I’m proud of how we’ve accomplished. I’m quitprettyased so far with how the system has performed.

You saw us put our balance sheet to use, and you saw the CET1 move from 11.8% to 11.2%, clearly leaving us lots of room and lots of buffers. And again, we’re early in this. We don’t know where this will go, but our gut or how we’re thinking about this is that this recovery will be uneven. So I would say that, as a team, we’ve pretty well discounted a uniform v-shaped recovery. The question is, it is U-this aped, is it W-shaped, or parts of it L-shaped. And I think we want to retain a lot of flexibility and capacity to step into the situations that count.

I mean, yes, what I said was that if you take the cards portfolio we have today, which is of a beer quality than it was back in ’08, and you would destress it for the ’08 financial crisis that, yes, our pro forma loss rates would be 25% to 30% lower than what we experienced in the last crisis.

We’re expected to be there for our clients in a period like this. And you’ve seen our CET1 ratio drop to 11.2% this quarter. And as the needs of our clients evolve, we’re going to be there for them and, if that means that our ratio takes more pressure, we’ll manage through that. If we were to drop below the 10% you referenced, there’s still plenty of room between that and the use of the buffer that the regulators have authorized.

Answer – Michael L. Corbat: Yes. So, Betsy, I would say, kind of looking at the numbers, we had roughly right around about $30 billion, $32 billion worth of draws in the first quarter. So somewhere 10%, 11%, 12% of our outstanding, unfunded. So I wouldn’t call that an overly significant number. And I think going back to my earlier comment to Glenn; I believe that the extraordinary actions are taken in the CP facilities in terms of some of the corporate facilities, some of the SBA, or probably more likely the Main Street lending facilities alleviates a lot of that pressure.

I think we saw two things there. First, those industries were under stress, and those were pretty easily identifiable along with the list that Mark had described. And then I think some just believed that it was an excellent time to bring in liquidity. And I think as the Fed programs and the Treasury programs came into place, the bond markets reopened, you saw record issuance of debt in the late first quarter. And again, when you look at our portfolio, it’s predominantly an investment-grade portfolio. That investment-grade portfolio with those programs in place has access to the capital markets, so we saw people shift there.

Something we’re paying attention to. We’re in constant dialogue with our clients. But again, I think, indeed, coming into the second quarter, we’ve seen de minimis draws on the facilities. And I believe, in our dialogues, we don’t see or feel that pressure right now.

I would expect that, with that as a backdrop, and again, subject to a loaning, including how customers respond to the relief programs out there, so on and so forth, that we would see addidifferentlds in the second quarter.

And that’s kind of where we are. I mean, I’m not going to — we’ve got the rest of the quarter to play out. We’ve got analysis and models that we have to do. We have consumers who have to respond to much of the stimulus out there. We’ve got to understand how it continues to impact the different businesses we’re in. It’s way too early to give you any sense of that number.

So again, no stress scenario that thus far would have contemplated the amount of fiscal reap monetary response that we’ve seen in short order. And so that’s not modeled. And how customers or consumers react to that is not part of any CCAR or DFAST model that we would have run. So how that offsets the impact of unemployment or uses is entirely unclear. And so there’s a fair amount — yes, it’s a data point, but there’s a fair amount of uncertainty and now differences, I would expect, in light of now managing through a real-life scenario.

And in terms of as we — as I may have mentioned, I think I mentioned earlier, at some point, you’ve got to put a stake in the ground at the end of the quarter and look at the assumptions that we have to work with Withings of those thousands of variables and certainly the key ones that I mentioned. And this quarter, in particular, we’ve seen things continue to move. And so even the view that we would have taken at the end of the quarter, around many of those metrics, they have — the outlook on them has continued to shift. And so, we find ourselves running various scenarios to understand the impact on our ratios and estimated losses, including ranges of unemployment from 10% to 15% and GDP declines from 20% to 40%. And we’re constantly kind of running those scenarios to understand the implications on our CET1 ratio and other important metrics third to run, manage, and plan at the Firm properly.

Bank of America

So when we weighted a scenario that produced a recessionary outlook, which included a significant drop in GDP in the second quarter with negative GDP growth rates extending well into 2021, we also considered the impact of various groups of credits and stressed industries. And while small relative to the impact of scenario weighting, we incrementally factored that analysis into the sizing of our reserve build.

ObviThere many unknowns, including how government, fiscal and monetary actions will impact the outcome, but we can also try to consider that. And we also had to consider how our deferral programs will impact losses. But perhaps the biggest unknown is how long economic activities and conditions will be significantly affected by the virus.. 

.organ Stanley

Question – Chinedu Bolu: My first question is an ROTCE for the Firm or how to think about downside ROTCE. Given that you are putting up 10% ROTCE in what is a very choppy backdrop, how should investors now think about the downside case for the Firm? Is it 10% or close to 10% ROTC directly your bottom line instead of a couple of years ago where that was your actual long-term target?

Answer – James Patrick Gorman: Well, Christian, let me take a go at it and, by the way, we’re all coordinating from different locations here. So if Jon and I have a little logistical mess up, forgive us, but I can see him on the screen. So I think we’ll manage through it.

We’re in a most unprecedented environment. I mean, if you’d said three mothreeths ago that 90% of our employees will be working from home and the Firm would be functioning fine, I’d say that that is a test I’m not prepared to take because the downside of being wrong on that is massive. If you’d said that every restaurant around the country would be shut for 2-2 weeks to remain closed, I would say it’s just not physically possible. So we’re seeing — you saw the jobs numbers, the applications for unemployment benefits, et cetera, coming through. We’re in an extraordinary period. So listen, what I look at is how do the businesses perform underlying in this environment? How do we trade through it, what was our risk exposure and how do we manage that, where do we take hits across the various parts of the plant, and you’re going to take them, whether it’s in the margin book, whether it’s in the asset management portfolios, whether it’s in the trading businesses and how did all of that look? Now we didn’t have a full quarter of being in absolute crisis, we had a half quarter or 2/3 of a quarter being absowholesis, but boy, it was an aa final. And for this fund, we have come through that and genegenerated5 billion in revenue, and that’s net of the deferred compensation plans, which actu us a bit over $10 billion in revenue, effectively flat to a year ago. I thought it was remarkable.

Now maybe it’s my job to think that’s remarkable. But I did think it was the stability and breadth of the franchise; the diversification clearly showed that we have an underlying sort of backstop of our performance. I can’t tell you it’s 10% ROTCE. I know that coming into the second quarter, we’ll have less market volume, lower interest rates, and lower asset prices at the moment; However, if we reprice our assets every month, we’ll probably have lower non-comp expenses. In the second quarter, there will be many things going back and forth for various reasons.

So is 10% a bottom? I don’t want to call that now because I just don’t know how deep this recession will be. But given what we went through to have produced that,t felt like a resilient franchise.

Answer – Steven Joseph Chubak: Quite helpful. James, maybe a question for you. You spoke of some of the risks the targets that you laid out at the start of the year, indeed not surprising given the world, using some of your words, is anything but typical. But admittedly, the message is a bit more cautious than maybe what you conveyed in your March shareholder letter. And I was hoping you could speak to me on macro and market assumptions are informing your more cautious outlook. I know that there’s a wide range of outcomes to consider. But if we do see a U shape recovery beginning in ’21, is there a path to delivering on some of the targets you outlined at the start of the year?

Answer – James Patrick Gorman: Yes, is the short answer. The macro-environment that I’m making the assumptions on, I mean, take the $5 million — 5 million job claims this morning for unemployment benefits. We’re going to have negative GDP of, I don’t know, 30%. So short term, anybody — I don’t mean to disparage anybody, but a CEO who stands by their short-term targets set right before this virus hit, I don’t know what planet they’re on. It just — you just — you can’t, you can’t predict that.

Over the last two years, the targets were by the end of ’21 and, there are the three tathreegets, the pretax margin of 28% to 30%. The ROTCE, I think, of 13% to 15%, and the efficiency ratio is 72%. Can we beat that by the end of 2021 on some of these targets? Bu, but said and have always said the trademarks normalized environment. This is not a normalized environment. We will not hit those targets in the second quarter. That promise you, we that did not hit them in the first quarter. But beyond that, let’s see how this plays out. If the equity markets recover, we’re not having mortgage prepay; our comps will be down. We’re affected by where interest rates are. And if they change, if there’s any move upwards through 2021, that’s enormously helpful. And things start getting a lot more interesting 12 months from now than they are right now. But honestly, it would be irresponsible of me to recommit to those targets on this call.

Now on the annual letter, that was different. I’ve seen in the annual letter that these were targets we laid out in 2019. We’re not ignoring them. We’re not hiding from them. Then what we believe the business will perform at in a normalized environment. And it will — I’m confident about that. But for right now, given we’re dealing with an earnings call and the earnings outlook, rise targets are not achievable in the second quarter. They weren’t achieved in the first quarter, and it’s too early to make the call on what 2021 looks like. But Steven, to your question, is it possible? 

CONSUMER SPENDING

Bank of America

We saw a severe immediate decline in discretionary payments for travel, leisure, and other things that you’ve read about in entertainment that you expected. This was followed immediately by significant increases in payments for necessities around groceries and staples like health supplies, et cetera. Then as large cities and states began to move to voluntary and mandated stay-at-home status orders, we saw significant declines in debit and credit card spending into other categories.

At the same time, we’ve also noted a stabilizing going on and the level of payments in other areas like ACH cash, wires and, P2P payments. The broader measure is the black line in the chart. As you can see, overall client payments have declined but remained at a high single-digit pace year-over-year, moving down from a double-digit rate to around 8%. The total movement in the U.S. has been pulled down by a significant decline in card spending, which is more than — which has been affected by the travel, entertainment, and other related areas in retail areas. And that’s gone from 7% to 8% to only 2% increases in the h, and it has fallen into negative territory in April.

However, the overall spending all types of spending in our customers seems to have stabilized in the last few weeks. We’re seeing spending run at about a low $50 billion average level during mid-April compared to a $60 billion before the crisis. That’s per week spending. We’ll see how that plays out through this quarter, and that stability may provide insight into the level of econeconomicivity in shutdown status.

Citi

Client engagement remained strong through February with h purchase sales growth of roughly 10% for the first two motwoths of the quarter. However, as seen across the industry, purchase sales declined significantly in late March with the implementation of more extensive lockdowns in many states. Categories like travel and entertainment have seen the most significant, while there has been some offset from higher spending on essentials and higher online sales. So in total, we grew purchase sales 3% by n Branded Cards in the first quarter, bu. Still, over the past month, the line would indicate a significant decline in purchase activity in the second quarter, which is expected to impact loan growth.

And so, in the quarter, if I think about kind of the last week of March, the card spend activity, just broadly for us, was down about 30%, U.S. spenspendscategory down a total of 30%. The big categories, if you will, impacted are not going to be of any surprise to you: travel, down 75%; dining and entertainment, down some 60%; discretionary retail, which would include apparel, the department stores, et cetera, down 50%; essentials were up 10%. And so as you would — as I think you would expect, and again, that got us to a total of about 30% in just the last week. We all have seen what has continued to happen over the past couple of weeks. And so I would expect — we would expect there to be continued pressure on purchase-sale volumes through most of the second quarter, in light of the way this is persisting, and that should play out as well on, ultimately, loan volumes, and we should expect to see some top-line pressure there.

Similarly, as you’ve referenced, we have a large retail services business and, we have partner clients who advise in that regard, and we’ve been working with them to help drive sales digitally. But obviously, the shutdown of most of the economy and the stay-at-home orders as well as the temporary store closures across most of the country will undoubtedly impact our partners and our results, including a slowdown in new customer acquisitions as well as, again, a lower purchase sales volumes — volume through that part of our business.

JPMorgan Chase

In March, we saw a rapid decline in spending initially in travel and entertainment, which then spread to restaurants and retail as social distancing protocols were implemented more broadly. While most spend categories were ultimately impacted, we did see an initial boost to supermarkets, wholesale clubs, and discount stores as people stocked up on provisions. Still, the event is now starting to normalize. And we saw similar trends in merchant services as highlighted in the significant decline in brick-and-mortar spend, excluding supermarkets, whereas e-commerce spending has held up well by comparison

Wells Fargo
Our customers also meaningfully reduced their card spending late in the first quarter due to the impact of the pandemic. As a result, during the first two months of the year, credit card volumes were up from a year ago, while March 2020 volumes declined approximately 15% from March 2019, resulting in first-quarter credit card purchase volumes being down 1% from a year ago. AIn March, we had meaningful shifts in customer spending in M grocery and pharmacy spending increasing, while all other categories were down from a year ago. Debit card spending trends were similarly impacted, but the change is seen spending less significant with year-over-year growth in January and February and a 5% decline in year-over-year volumes in March. Similar to credit card spending shifted significantly in March, but the change in this category started to slow in the last week of the month.

GUIDANCE

Citi

Given the adverse impact of COVID-19, we no longer expect to deliver the RoTCE of 12% to 13% for the entire year. Based on what we are seeing today, on the top line, we expect the revenue trend in the latter part of March and the beginning of April, characterized by COVID-related lower level of activity, particularly in banking, and our consumer franchise will continue through much of the second quarter. And in our Markets business, revenue should reflect the broader industry. The first quarter is typically the strongest. And clearly, this year was part solid. We would expect some normalization in activity levels here. And finally, we will see the more pronounced impact of the lower rate environment on the top line.

Looking ahead to the second quarter and the remainder of 2020, we expect a higher level of losses given our current outlook. And as our view continues to evolve, it is also reasonable to expect additional increases in credit reserves if our outlook deteriorates further. However, given the credit quality of our portfolio, we remain confident in our ability to maintain our overall strength and stability and continue to support our customers and win new business. Undoubtedly, every company worldwide will feel an economic impact from this unprecedented situation. Still, we are confident that Citi will emerge in a position of strength, having demonstrated that we lived up to our stated objective to be an indisputably solid and stable institution and having shown that we stood by our clients and supported our customers and employees ring this challenging time.

Wells Fargo

Question – Kenneth Michael Usdin: Yes, exactly, Charlie. And second question, John, understanding the pulling entirely away from giving full-year guidance, is there a way you can help us know on the NII front just how you’d expect the trajectory at least to go from first to second given the changes and all the moving parts that were in this quarter’s results?

Answer – John Richard Shrewsberry: Yes. It’s a fair question, but not quite yet. We’ve got the — I think we’re all forecasting something like 0 in the front end or depending on where LIBOR moves over time and then some number between, call it, 70 and 100 basis points at the long end. How depot sits pricing reacts to that, and it came down in this quarter and, we anticipate it coming down rapidly over the remainder of the year, will be a significant driver. What of these recent balances that we just booked stick versus those dialed back down, I think will,l be an essential driver. So not looking for NII growth, I’m sure it’ll be down by some amount, but we’re not being any more precise. And hopefully, by the time we get to either mid or at the end of the second quarter, we’ll be able to be a little more declarative about that.

DEPOSITS

Morgan Stanley

And we did see a surge in deposits in March, almost $30 billion in the month of March alone. And the balances are up to $45 billion for the quarter. That was generally a result of people shifting out of equities and going into cash in the wealth system. I think you can see, on Page 11 of the supplement, Christian, the various balances in the banks. Most of that excess cash — excuse me, excess deposits are sitting in cash. You can see we increased our loans a little bit. We’ve expanded our securities portfolio a little bit, but most of that cash is undeployed and, we’ll have to see around the resilience of that. It puts us in a much better position. Our BDP, which is our cheapest source of deposits, currently has a cost of 1 basis point, is now about 65% of the portfolio. It was closer to [60%] or [58%] a while ago. Our high-cost deposits, I think, the blend between the CDs and some of the other products we have in there is about 160 basis points.

And so obviously, as we can shift more to BDP, that will be significantly beneficial, and I think our deposit cost at the end of the quarter was about 56 or 57 basis points. So those should come down a little bit as we’ve just repriced our savings product in light of the rate environment.

So I would say we should — if we had the opportunity to deploy those deposits into loans, be cautious and see how those deposits behave for a little while before we fully deploy them.

Goldman Sachs

Answer – Steven Joseph Chubak: So wanted to start a question on funding. One of the biggest drivers of the ROTCE build you laid out at Investor Day was the $1 billion benefits from funding optimization. And we tracked the deposit costs pretty closely, we’ve seen many of your competitors aggressively match the Fed rate cuts, but you’ve maintained very competitive deposit payouts. Certainly helped contribute to solid deposit growth this quarter. I was just hoping you could update us on how your deposit strategy is evolving in the low rate environment and whether the flat yield curve and still-elevated deposit payouts could impact that $1 billion fund benefit you cited at Investor Day.

Answer – Stephen M. Scherr: Sure. Thank you, Steve. So let me start with a strategy around rate. We took our rate down yesterday in the U.S. relative to where it had been. So our supply chains are unchanged in that regard, which is we aim to be certainly not the top rateratepayer somewhere in the 3 or 4 categories. And we’ll continue to do that to build out more excellent product attributes and a more formidable relationship with depositors. So we rely less on the rate in both drawing and maintaining deposits. But it’s against that strategy that we saw, at least for us, record inflows on the deposit side.

In terms of the medium-term target which we set out in Investor Day of achieving $1 billion of savings occasioned by the migration of our funding mix, that’s no less an imperative for us now than it was then. And I’d simply point out that the market will pull some volatility into that measurement. So again, this is a medium-term target that we will achieve. We will move closer and closer to 50% of our funding in deposits.

The amount or the delta of savings, if you will, will be a function of where we take deposit rates in as much as where wholesale funding takes itself. And I think, particularly in this market and most notably in March, this was a naturally excellently stable funding source for us.

But I think the forward trajectory, both as a strategy and then equally as it relates to our ability to harvest the kind of savings that we talked about over the medium term, is one that we will adhere to and watch and achieve.

Citi

Answer – Betsy Lynn Graseck: Got it. And then on, the deposit side, can you give us a sense as to the percentage of the draws that went into deposits and how you think about the persistency of those deposits as well.

Answer – Mark A.L. Mason: Let me comment a little more broadly on the deposits. So the ICG deposits that we saw come in, in March were about $92 billion. So deposits grew pretty significantly just in the month of March. And if I break that down, about 1/3 of that were from corporate clients that built liquidity through draws or issuance. And it’s not necessarily just liquidity, just draws from us, but about 1/3 of it, we would attribute as being tied towards that increase in liquidity draws or issuances that they’ve done. So about 1/3 were from broker-dealers and clearing houses and financial institutions as they bolstered their liquidity buffers, and then 1/3 were from investor clients derisking and moving to cash.

And so that gives you a little bit of a sense for the mix. But, again, we obvi at the persistency of the deposits, and some of those are certainly operating deposits. And I think part of what will inform the view to some extent is, as Mike described, the additional channels that are now available for clients to access additional liquidity as needed and how long this persists. And there’s a fair amount of uncertainty, as you heard us reference how long this crisis we’re managing continues. So hopefully, that gives you a sense.

DIVIDEND

Citi

And again, I think, as we said, I believe there are two roles, one is how do we use our balance sheet and then how do we use and bring to life a lot of these programs and continued programs that are being put out there by the Fed and the Treasury. So we’re prepared to let that ratio go down in the right situations. We’re in conversations with our Board. We are in discussions with our regulator. And I think, Mark said, we feel that we’ve got much capacity in terms of capital and things that we can do before we get near triggering any conversations around dividend. But again, we’re going to — we’ll treat that as a time when it comes. But to be clear, in our capacity here and the way we’re looking at things, we remain committed to paying our dividend.

JPMorgan Chase

It’s worth noting here that an environment like this is precisely why we have the buffers in the first place. We currently also have capped the city and intend to continue to pay the $0.90 dividend pending Board approval. And as you can see in the CET1 walk on the bottom left, it is a small claim on our capital base.

Goldman Sachs

Given our continued earnings generation and solid capital position, we feel comfortable maintaining our dividend as it relates to our dividend.

Bank of America

But in terms of the dividend, we kept the dividend payout ratio below 30% of the normalized earnings level. And we did it because– one of our operating principles is we wanted to maintain a dividend. And given what we know, we’ve done twice the bonus this quarter at $0.40 versus an $0.18 payout ratio, and we expect that to continue. And that shows you the 100-plus basis points, 130 basis points of excess capital. So we’ve tested it in many ways, as you might expect.

As we talk to our Board about capital management, as we speak to our Board about dividends at any given time, we’re showing them severely adverse cases, adverse cases, and thinking through the pretax PPNR capability of withstanding different reserve builds and outcomes. And so that’s what we’re doing, and we plan to keep it going.

Wells Fargo

Well, listen, I think. Indeed, the dividends are essential for all who own the stock. And ultimately, those that wind up benefiting from stock ownership are individuals in one way or another, whether it’s direct holdings or pension plans and things like that. And so I think the income stream that people come to rely on, especially at times like this, is impoessentialt there has to be an underlying ability for companies to the bay. And so too, the extent that they have that ability to pay, I certainly think it’s the right thing to do for the reasons that I just said. We have strong capital ratios. We did all the stress tests and whatnot John referred to and determined our ability to return capital in these severely stressed environments. Also, remember that we are slightly different from others because of the balance sheet cap. So our balance sheet cap does limit our ability to deploy capital internally. And so bas, ed on that, that’s why we sit here and look at it and say that we think the dividends that we’re paying make sense. But as I alluded to in mto y previous comments, we don’t know what the future looks like. So based on the assumptions laid out in these very stressed environments, we feel good about it. But ultimately, the timing and the pace of the recovery will determine earnings capacity for everyone to be able to continue to support the level of dividends.

And also, I’d add to Charlie’s view, though, that as the quarters unfold. We figure out how long we will be in this economic state and what the path forward looks like. We use that to interpret and estimate our go-forward earnings trajectory; that’s the context for understanding the steady-state dividend should look like.

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